Shipping firms pass on piracy charges to local importers

Traders are rallying international support for the war against pirates off the coast of Somalia to stop the loss of billions of shillings through surging shipping costs.

Traders maintain that piracy is not a problem of Kenya’s making, but international shipping lines are passing on the additional cost of sailing longer routes to avoid attacks and beefed up vessel security to consumers, drastically pushing up the cost of sea freight with negative impact on the region’s economy.

Figures released on Tuesday by the Kenya Shippers Council (KSC) indicate that the region has been paying out Sh2billion every month to cover the cost of piracy over the last 18 months.

“The money is just the direct upward cost adjustment that international vessels have made to cover themselves from piracy but could be double if we include opportunity cost like lost market share as some orders may end up not reaching their destinations,” said the KSC chief executive Gilbert Lang’at

He added: “A clear case in point is the recent hijacking of NV Delvina with 15,050 tonnes of wheat. The loss of production capacity and sale by millers who made the order, going by a conservative figure of $238 per tonne, gives a revenue loss $3,581,900.”

Based on container throughput at Mombasa port, averaging 40,000 twenty foot equivalent units, KSC puts the increased monthly cost that directly results from piracy on imports (28,000 TEUs) at Sh1.8 billion ($23.8 million), while exports attract an additional Sh735 million ( $9.8 million) per month.

Among the new charges that shipping lines have introduced to ensure ransom activities do not drive them out of business include container handling charges which have risen by between 34 and 150 per cent compared to rates before October and bulk cargo freight rates, which have gone up between five and 150 per cent.

Voyage time has increased from an average of 12 days to 30 days.

“We are calling on the international community like the UN and countries in Europe and America that trade directly with us to come to our aid through provision of safe passage routes in the Gulf in terms of naval escorts and other subsidies because the situation has become more serious. Pirates have become bolder and engage bigger vessels using more sophisticated equipment,” Mr Lang’at said.

The release of the figures comes hot on the heels of the Foreign Affairs ministry’s warning last week that happenings in Somalia could force the government to rethink its longstanding non-interventionist policy and adopt a more aggressive one towards the stateless country.

“Obviously, we cannot continue to watch from a safe distance as happenings both within and outside Somalia continues to impact negatively on Kenya,” Foreign Affairs minister Moses Wetang’ula told journalists over the weekend.

If the government decides to change its diplomatic tack and intervene directly in Somalia’s affairs, it will be a radical departure from the 2007 case when it refused to send its troops to back the African Union Mission to Somalia (AMISOM), a regional peacekeeping force approved by the UN in the hope of rehabilitating the war torn nation.

At a meeting with American investors last week, US ambassador to Kenya Michael Ranneberger said Kenya’s image problem was partly due to lawlessness in Somalia.

“As long as Somalia remains a lawless country in the region, the US travel advisory issued against Kenya a few years ago will remain in force,” said Mr Ranneberger.

Last December, the UN Security Council flexed its muscle when it slapped sanctions on Eretria, accusing the country of supporting insurgency in Somalia.

International effort

The council also called for concerted international effort to end lawlessness in the country and warned that any power in the region faning the crisis would be dealt with severely.

But Kenyan exporters, who rely on Mombasa port, are not willing to wait longer.

Last week the Fresh Produce Exporters Association of Kenya (FPEAK), a lobby group for exporters of produce such as avocado, pineapples, mangoes and vegetables, reignited calls for international action saying heightened piracy activities along the Eastern Africa coast was costing the industry $12 million (Sh900 million) in additional costs every month.

“The half-hearted attitude towards fighting piracy in the region stems from the misguided notion that no one is affected. Governments in the region view the menace as a problem of international shipping lines, while vessel operators simply pass on the cost to local shippers and therefore see no need to press for their governments’ cooperation in eradicating it,” said Dr Stephen Mbithi, the FPEAK chief executive officer.

According to Mr Lang’at, the insurance companies now charge a premium of $300 to provide the same cover that would have attracted $150 18 months ago, while shipping lines have increased freight charges from $900 to $1,200.

Also increased by shipping lines due to increased piracy are War Risk Surcharge (now $250 from $100), Bunker Adjustment Factor (from $340 to $680) and Piracy Surcharge ($90 to $153).

“Some economists may argue that piracy money finds its way into the country and therefore stimulates economic activity, but we must never forget that a good number of exporters being forced to raise the ransom money are small scale farmers who can hardly make ends meet,” said Dr Mbithi.

KSC data indicates that the rate at which international shipping lines pass on costs to local shippers varies from one vessel to another.

Maersk and SAFMARINE are currently the most expensive lines, each levying a piracy surcharge of $153 (Sh11,475) from the $90 (Sh6,750) that they used to charge before October last year.

ZIM has increased its piracy surcharge to $150 from $60; DELMAS from$100 to 130; CMA CGM from $75 to $90, while PIL has also adjust the ransom cover to $90 from $60 last year.